You Can Never Be Too Rich Or Too Patriotic

If there's a bright spot in retailing, it's the luxury market, right?

After all, many luxury retailers reported double digit sales increases in the first quarter 2011. For example, Nordstrom, Inc. Executive VP Erik Nordstrom noted that the more expensive merchandise outperformed the rest of the store in the first quarter, increasing the company’s average price point. Saks, Inc. announced moves to rebalance its merchandise towards its most expensive goods, betting that higher income shoppers will pay full price. And Bain & Co. predicted an 8% rise in overall luxury sales in 2011 to a record $274 billion, with growth to between $317 billion and $328 billion in three years.

According to Unity Marketing, Inc., its Luxury Consumption Index (LCI) rose from 76.1 in the fourth quarter 2010 to 82.8 in the first quarter 2011, its highest rate of growth in a year, although still below its first quarter 2010 peak of 86.9. The LCI survey of 1,200 affluent consumer households, with two-thirds earning between $100,000 and $249,999 and one third earning $250,000 and above, covers 22 major categories of luxury goods and services, including clothing, fashion accessories, home luxuries, travel, dining, and jewelry.

Unity's number crunching revealed the nearly rich -- those earning from $100,000 to $249,999 per year -- purchased an average of $14,241 worth of luxury goods in the first quarter while the rich -- those earning $250,000 plus per year -- spent an average of $56,534 on luxury goods. That's good news. The bad news is that the numbers are virtually flat from the previous quarter.

The nearly rich feel constrained by falling home prices, income gains that lag behind inflation, 9% unemployment, and a reluctance to dip into savings after the recession. They are, however, insulated from rising food and fuel prices by gains in their financial portfolios.

In a separate Unity survey conducted April 6-13, 2011, almost 70% of 1,321 luxury consumers aged 45 years old with an average income of $287,200 and a median net wealth of $897,000 said the place of manufacture is important when considering a new purchase. Most associate countries like the US, Italy, France, and Germany with better quality luxury goods and 63% said that manufacturing luxury goods in less costly places like China is bad for luxury consumers.

So how will the luxury market play out? According to Unity, much of the pent up demand for luxury goods that built during the worst of the recession has already been released. Spending on luxury is likely to flatten out over the coming quarters unless there is dramatic improvement in the overall economy.